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Corporate Counsel Connect collection

December 2015 Edition

Sterling Miller’s Ten Things: Explaining litigation to the board and the CEO

Sterling Miller

Sterling Miller How have you explained (and reported on) the litigation to your CEO and the Board of Directors? In many cases, neither senior management nor the directors have much, if any, experience with litigation. You can avoid a lot of frustration and second-guessing by taking the time up front to explain the litigation process to them and by providing regular updates thereafter. As you will likely need sign-off from the CEO or Board regarding many decisions including settlement authority, alternative dispute resolution (e.g., mediation), budget, etc., the better informed they are about the litigation – and the litigation process generally – the easier time you will have getting what you need and avoiding delays on key decisions.

This edition of Ten Things will set out key things you need to do in explaining and regularly updating your CEO (including senior management) and the Board of Directors about important litigation. For purposes of this post, I will assume that the litigation is material to your company such that it warrants the attention of the CEO and the Board:

  1. Describe the process/timing. One of the biggest mysteries about litigation to senior management is simply “what is the process” and “what are the timelines”? As in-house lawyers, we tend to just assume everyone knows the basics of the litigation process. That is a mistake. A big source of frustration and confusion for the CEO and the Board is simply not knowing how litigation “works.” Accordingly, one of the first things you should do is set up some time with the CEO/affected business leaders (and ultimately the Board) and walk them through the litigation process and the expected timelines. You should create a presentation that that includes, at a minimum, a description of the litigation (i.e., what it’s about) and the timelines for the following: a) the complaint, b) the answer, c) discovery deadlines (written discovery/depositions), e) expert witnesses, f) motions to dismiss, g) counterclaims, h) summary judgment, i) trial, j) motions in limine, k) jury selection, l) estimated length of trial, and m) the appeal process. Granted you will not know all of these deadlines with certainty at the start, and you can either estimate based on experience or, worst case, put “TBD.” As you step through the timeline, be sure to spend a few minutes explaining what each of (a)–(m) are so everyone can better understand what’s coming. The goal is to create a reusable document that you can update during the course of the litigation as dates change and as new items appear or get resolved.
  2. Selecting outside counsel. You might think picking counsel to prosecute or defend litigation is left completely to the legal department, but that is not always true. Be prepared to explain to the CEO/Board the reasons you selected the firm and always anticipate pushback (though there may not be any). It may be that the Board wants a “name brand” firm, that the CEO has a friend who’s a partner at Firm X, or any number of reasons why your selection may draw questions. Do not be defensive about it if this occurs. It’s important that you can articulate why the firm you selected is the “right” firm for the job (and, quite frankly, you should already have those reasons down in your head from the start). It may be that the case is insured and you need to use counsel preferred by the insurance company. It could be that you know the case is going to go to trial and you want a firm with a lot of trial experience in this particular court. Or your lawsuit involves a certain statute or type of claim where you need a firm with expertise in that specific area. You should be able to set out the process you went through to select counsel (RFP, references, etc.) and be ready to explain your selection. It’s also a good idea to have your outside counsel meet the CEO (or the Board if the case is significant enough) very early on so they can get comfortable with the legal team. Consider putting together a packet to give to the CEO/Board that includes your outside counsel’s pictures, bios, awards, and honors (yes, finally a practical use for all of those outside counsel marketing materials).
  3. Define success. Whether you are plaintiff or defendant, it’s critical to know what the company’s goals are with respect to the litigation. Defining these goals involves working closely with the CEO and the Board. Is the goal about money (gaining/losing) or a specific action, such as advancing or defending a strategic objective? Is it about preventing damage to your stock price or business reputation? Is the goal about boosting employee morale, maintaining relationships, or preventing more lawsuits of a similar nature? Regardless of the goal, you (and outside counsel) must take the time to truly understand and agree with the business/Board around defining success in the litigation. One suggestion is to commit to writing what’s called a “Definition of Success Memorandum” which, like all litigation plans, can – and likely will – change over time. This memorandum acts as a measuring stick for Legal and the business to determine “how things are going” with the litigation.
  4. Budget/cost. A common area for surprises and unhappiness is the cost of litigation. This is especially true when you wildly surpass the budgeted amounts and/or the business has no advance warning about a budget miss (which, for example, can make a huge difference for publicly traded companies and meeting earning expectations). Consequently, it’s important to spend time up front – and every month – working on a realistic cost estimate and keeping senior management up to speed on how things are progressing on the cost side (good or bad) and “why.” Resist the urge to underestimate the cost (so things look a little better) and try to honestly set forth the cost of proceeding with or defending the case. If your company is the plaintiff, the cost can be a factor in determining whether to go forward or not. If you are the defendant, the cost may require adjustments in spending for other parts of the business so there is money to pay for the litigation. The key is to be open and honest about the costs and be able to show that you are using best practices to proactively manage costs.
  5. Decision trees. At some point the CEO or the Board will ask you “What are our chances here?” or “What is our realistic exposure?” Telling them that litigation is too hard to predict so you cannot answer the question is not a good idea (except for early in the case where you would add that you will get back to them as soon as you have more information about the merits of the case and the amount of damages the plaintiff is seeking). The business operates in an environment of uncertainty every day. They will not be sympathetic to Legal telling them “uncertainty” prevents coming up with an answer. I think the best way to respond to this type of question is with a decision tree. I like decision trees because the business is used to them (they use them all the time) and they allow you to change variables/assumptions/numbers as the case changes. They can be simple or they can be complex. Your Finance colleagues may even be able to help you create a decision tree spreadsheet. Seeing the analysis on paper gives the CEO and Board added comfort that you are on top of the case.
  6. Time diversion of management. Everybody is gung-ho when litigation starts, especially when they are the plaintiff. It has always reminded me of the opening chapters of “All Quiet on the Western Front” when everyone was giddy about heading off to the start of World War I. But, similar to the book, everyone starts to realize that big time commercial litigation is a slog through “no man’s land” and begins to question why the company is involved in litigation in the first place. It is very important therefore to educate everyone on the time diversion they can expect as the litigation moves forward. To successfully prosecute or defend litigation, there will need to be large commitments of time by the business (usually including the CEO and CFO and potentially the Board) to things like: educating outside counsel about the business and the issues; running down requests for information from counsel; depositions (including preparation time); assisting with responding to document requests, interrogatories, and requests for admissions; assisting expert witnesses; attending hearings and attending trial (e.g., the company representative), etc. Litigation is not something that will or can be handled solely within Legal but rather it will reach deep into the business, and the company needs to prepare for and accept that a number of different and valuable people will be taken away from big parts of their day jobs to assist with the effort.
  7. Confidentiality. Be sure to tell the CEO/Board up front that they need to brace for seeing some (or potentially a lot of) company emails and documents made public during the litigation, even ones that seem to have little relevance to the legal issues and are otherwise embarrassing or “cringe-worthy.” Courts in the U.S. lean heavily in favor of making almost all case materials public. The business needs to understand and prepare for this. Using documents to drag the other side through the mud is a typical tactic in litigation, often done to increase settlement pressure or simply to inflict pain on the other side once the gloves are off. Very early on, you will want to set straight anyone who believes that litigation is confidential. It isn’t. The wrong time for this issue to come up is when the CEO or Board first hears about a “bad” document through the media. Prepare your Board and executives for this problem up front and, as you come across troublesome documents during the course of the litigation, report that back to them regularly. You can tell them that you will seek to file documents under seal, ask for protective orders, and file motions in limine before trial, but everyone needs to be realistic about the risk of poorly written or poorly thought-through documents leaking out. Additionally, loop in the corporate communications team as it will need to prepare a media/employee communications strategy in the event any problematic documents or emails do become public. Note that any litigation media strategy (and the documents/emails regarding the same) may not be privileged, including when you use outside media consultants. Meaning, writing smart is very important for the corporate communications team (and any outside consultants) as well. Finally, if your company is publicly traded, you need to prepare the CEO and Board for the requirements around describing material litigation in public filings (e.g., quarterly and annual reports, 8k).
  8. “Why is this taking so long?” On television, most litigation wraps up in 60 minutes. Sadly, the real world doesn’t work so quickly, and many executives and directors are surprised by how long the litigation process can play out. Get ahead of this issue early in the case. While most litigation settles, that usually does not occur until 12 months or more into the case (as the evidence gathered in discovery and depositions is important to framing up settlement positions). Most cases do not get to trial until 18 to 24 months have passed and sometimes up to three years. Appeals can add another 12 months or more to the process. Be frank about the fact that the pace of the litigation is not in your complete control. While you can control what your side does (i.e., your outside counsel’s behavior, your motions, your pleadings, your schedules), you have no control over what the other side does or how the judge wishes to manage her calendar. There are many factors that impact timelines in litigation, most tied to the length of the discovery process (which is dependent on schedules of lawyers, witnesses, experts, and others) and the court’s calendar and availability to hear motions and disputes or, ultimately, set the case for trial. When you set out case deadlines or dates for the CEO/Board, be sure to add that the dates are not set in stone and are subject to being postponed due to scheduling conflicts, other cases on the court’s docket, illness, vacations, etc.
  9. “The judge did what?!” I got this question a number of times and it just goes to underscore that litigation is messy and frustrating and, sadly, it’s not always fair. They call them “hellholes” for a reason. While most judges are smart, hardworking and even-handed (i.e., fairly calling balls and strikes), every once in a while you get one that is not. Prepare your CEO and Board for this potential problem. You and your outside counsel should do some diligence on the judge and determine how they have ruled in the past, their reputation in the legal community, their record on summary judgment, on being reversed on appeal or taken up to a higher court on a writ of mandamus, etc. Find out if they have standing procedural orders and do those orders appear to favor one side or the other. Share what you find out with the business so they have a sense for what to expect from the judge. As you gain experience with the judge over the course of the case, the report can be updated (good or bad). For example, in litigation you should expect to win the motions that you should clearly win and lose the motions you should clearly lose. There will be a large middle ground of motions where it’s truly 50/50 and some you will win and some the judge will just see differently than you do. However, if you are losing every motion and feel like the Washington Generals, you may need to contemplate more drastic measures such as seeking recusal of the judge – which is a decision that you cannot take lightly nor make without the input of the CEO/Board because if you fail you will certainly have given the judge even less reason to like the company.
  10. Regular meetings/reports. Items 1-9 above all build up to preparing and presenting regular reports to the CEO and, as warranted, to the Board. You will develop your own form of report over time but it should include updates on, among other things:
  • Timelines: where is the case in the timeline, what’s coming up, any changes in timing.
  • Key motions: pending, contemplated, risk/reward, and results.
  • Depositions: summaries of key “gives and gets” and overall rating of the deposition (I used a 1-10 scale).
  • Budget: how you are tracking to budget, any changes in assumptions, or any unexpected changes in spend (good or bad). You will want to update the CFO/Finance team more frequently on this item.
  • Decision tree updates: use the most current information to add or take out claims, update percentages, damages amounts, and expectations.
  • “Hot docs”: identify new documents that could significantly help or hurt the case and the plan to deal with them, as well as documents that could be problematic if made public (even if not really material to the litigation) and the plan to deal with them.
  • Damages update: provide an update on the damages sought by either side, e.g., direct, consequential, punitive, injunctive, interest, and statutory.
  • Settlement/ADR: updates on prospects for settlement (including proposals made or received) or alternative dispute resolution (e.g., mediation), seek settlement authority.
  • Judge/jury research: updates on the judge and, if ready, updates on any jury research.
  • Strategy issues: any key strategic decisions that need to be made or for which you seek CEO/Board input (key motions, jury waiver, subpoenas of third parties the company has a relationship with, etc.).
  • “Definition of Success”: update your Definition of Success Memorandum and use the meeting as a touch-point to note how things are going and to consider any changes.

It is also a good idea to have your outside counsel present (on the phone or in person) during these updates as it gives the CEO and Board a chance to get more comfortable with them and to ask questions that you may not otherwise have the answers to. If you do this, just be sure to take an active role in the presentation and discussion, as you do not want the CEO or Board to see you as a potted plant.

If your company is sued (or is contemplating suing another company) make sure the CEO and the Board understand from the beginning what to expect during the litigation process. The fewer surprises and the more input they have into the case (e.g., defining success, budget approval, strategic decisions, etc.) the more likely it is that they will feel comfortable and leave the day-to-day details to you and the legal department. Moreover, agreement on defining success will mean that when you “win,” everyone will agree it was a great day.

About the Author

Sterling Miller was the General Counsel, Corporate Secretary, and Chief Compliance officer for Sabre Corporation from 2008-2014. Prior to that, he was the General Counsel for and in the Sabre Corporation legal department, in charge of litigation and regulatory affairs. Before moving in-house in 1994, he was an associate in the Litigation Section of Gallop, Johnson & Neuman in St. Louis. In November 2014, he retired from Sabre and decided to start a blog featuring lessons learned in 20+ years as an in-house lawyer. Read more from Sterling Miller in his blog, Ten Things You Need to Know as In-House Counsel.

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